Quick commerce companies' foray into food biz rustles up restaurants

Restaurants body NRAI is also exploring legal routes and is likely to knock on the doors of the Competition Commission of India to address issues related to private labelling

The Federation of Hotel & Restaurant Associations of India (FHRAI) on Friday said it will approach the commerce ministry to discuss private labelling of food items by Zomato and Swiggy through their recently-launched quick-food delivery platforms, Bistro and Snacc, respectively. 

“We are in the process of setting up an appointment with the commerce ministry. We will visit the ministry on Monday or Tuesday. We are also trying to reach the commerce minister and the secretary to issue a statement on the matter,” said Pradeep Shetty, vice president, FHRAI.  

Not just FHRAI, the National Restaurants Association of India (NRAI) is also mulling legal action against the food aggregators. The restaurant's body is likely to go to the Competition Commission of India (CCI) to raise issues such as consumer data masking, private labelling, and abuse of dominant position, among others. NRAI represents the interests of over 500,000 restaurants pan India, said its website. 

Sagar Daryani, president of NRAI, said, “Swiggy and Zomato are selling products just similar to what our restaurant sells and they are buying these products from many HoReCa vendors.” HoReCa vendors are third-party suppliers that provide products to the hospitality and food industry.  

Shetty added that if a marketplace has to remain a marketplace, the person owning it cannot sell the same products. Otherwise, it’s a conflict of interest.  

Albinder Dhindsa, co-founder of Zomato’s Blinkit, said on social media that Bistro is a standalone team and app and no Zomato restaurant data has been used in building it. 

 “This is going to be a significant additional cost to us, but ethics and sticking to our word mean more than anything else to us at Zomato. We are not going to give it up to save some marketing cost,” he wrote on X.  

In response to the post, Shetty said, “If you're a subsidiary of Zomato, then that kind of trusting aspect cannot come. There is a severe trust deficit between the industry and food aggregators. It's very difficult to believe that the data will not be used to set up competition against the restaurants.”  

Echoing Shetty’s views, Gauri Devidayal, joint secretary, NRAI, said, “There's consumer masking because we don't get data about our own consumers. However, the same data is now being used to compete with us. This is wrong in principle. Basically, they're (food aggregator apps) going back on their word. We work with them because they're a tech platform. They're not restaurants.” 

Dhruveer Gandhi, secretary of the NRAI Mumbai chapter, said it recently came to his attention that some restaurants were approached by food aggregator platforms to start dark kitchens. 

“They mentioned having all the data to predict customer preferences, such as what food is in demand and at what times. This approach highlights the data advantage they hold, which can be concerning for traditional restaurants,” he said.  

On the aspect of legality, Daryani added that they look at food aggregator platforms as partners, and while they have always given a verbal assurance, there is no written contract that prevents these platforms to do private labelling. This is still a breach of trust, Daryani added.  

 Daryani said the restaurant industry is already struggling and private labelling will further hurt the businesses. “The commissions are so high anyway. There are complaints from restaurant partners that their visibility is compromised if they don't participate in the discount campaigns of aggregators,” he said.  

Combined with goods and services tax (GST), restaurants shell out a 35 per cent commission to aggregators. Add discounting to this, how do you survive and run a business by giving so much to aggregators? Daryani asked. 

According to the Competition Act, 2002, practices that adversely affect competition or entail abuse of a dominant market position are prohibited. 

“If Swiggy and Zomato use proprietary data from partner restaurants to unfairly dominate the market, this could constitute an abuse of dominance. It may warrant scrutiny by the Competition Commission of India (CCI),” said Sonal Alagh, Partner; Alagh & Kapoor Law Offices. 

In the April 2022 order by the CCI, NRAI had stated that Swiggy and Zomato collect data from customers based on their past purchases and use that data to customise offerings being made to each consumer. 

“The data they (Zomato and Swiggy) possess also strengthens their market positioning, dissuading new players from entering the relevant market,” NRAI had stated in its plea. 

The CCI had ordered an investigation by the Director General (DG) into the conduct of food delivery aggregators’ business, the details of which are yet to be made public. 

Indian laws, particularly the Competition Act of 2002, under Section 3, prohibit anti-competitive agreements, including practices that lead to market foreclosure, reduce competition, or create a dominant position. 

The Act prohibits cartels, which are agreements between competitors to limit competition, said Kunal Sharma, partner, Singhania & Co.  

  As far as legal recourse of NRAI is concerned, Prachi Dubey, advocate, Delhi High Court, said NRAI can file a complaint with the CCI. It will evaluate whether Swiggy or Zomato are dominant players or their actions amount to an abuse of dominance or lead to anti-competitive effects. 

Remedial Measures

 

*  Federation of Hotel & Restaurant Associations of India to approach the commerce ministry to discuss private labelling of food items

 

*  National Restaurants Association of India may approach Competition Commission of India